Doha Empowers India to take on Opec
THE BIGGEST potential gain to India from the Doha Round of the World Trade Organisation is something India actually opposed – bringing competition policy into the new agenda.
This gives India an opening to try and dismantle the cartel that poses the biggest threat to its prosperity, Opec. Till now, WTO and its predecessor GATT limited their work to reducing import barriers. Their mandate did not cover export barriers, of the sort manipulated by Opec to rig up prices.
This is why Opec never came up for discussion in GATT, despite the fact that such a cartel flagrantly violates the principles of free, competitive trade.
But the new Doha proposal on competition policy provides explicitly for “provisions on hardcore cartels”. This will enable India to raise the issue of Opec in WTO, mobilising support from other oil-importing nations.
The US may not be very keen, since President Bush is beholden to oil interests in Texas. But other oil importers can be mobilised. Competition policy offers, for the first time, an opportunity to reduce the havoc wreaked on our economy by rigged oil prices.
Few people realise how high the cost India bears because of rigged oil prices, or how dependent the country is becoming on Middle East oil and gas.
As India moves from biomass fuels (firewood, cow dung) to commercial fuels, the consumption of oil and gas typically rises faster than GDP. If India’s GDP rises by no more than 6 per cent annually, oil and gas consumption will rise by 7 per cent annually. At this rate, consumption will double in 10 years and quadruple in 20.
So, by the year 2020, India will consume around 400 million tonnes (mt) of oil and gas equivalent, up from around 100mt today. More than 90 per cent of this will have to be imported, since the country has little domestic oil.
This will make India as dependent on Middle East oil as the US was at the time of the Gulf war in 1991. That illustrates graphically our need to ensure that oil is de-cartelised.
The cost of producing oil in Saudi Arabia is probably under $3 a barrel. The region has made healthy profits even when the price sank to $10 a barrel some years ago. Yet Opec keeps trying to rig production to raise the price to around $25 a barrel. n Opec price fixing: Pg 6
If rigging raises the price by $15 a barrel above the non-cartelised rate, that comes to around $110 per tonne. If India has to import 400mt of oil and gas by 2020, the additional cost of such rigging will be a whopping $44 billion per year.
For every dollar per barrel that India can reduce the rigged price, the import bill will fall by $2.8bn. No other WTO measure, whether the abolition of textile quotas or agricultural subsidies, can match the potential gains to India from oil de-cartelisation.
Unfortunately, the government has for long got into the mindset of treating international negotiations as a North-South issue. In fact, India’s interests are directly opposed to those of developing countries of Opec, and aligned with those of big oil importers (which are mostly developed countries). The mindset of our negotiators needs to change.
So, Murasoli Maran, instead of trying to keep competition policy off the future WTO agenda, please make it the centre-piece of India’s new demands.
If in the bargain India itself has to give up some non-competitive practices, please regard that as a benefit to its people rather than a reduction in politicians’ perks.